Several European equity markets have rallied more powerfully than expected but Andy Dodd, Head of Technical Research at Louis Capital Markets, says they still need to break above their downtrends in order to change his bearish outlook.
Looking at daily charts of the EURO STOXX 50, STOXX Europe 600, and DAX, Dodd notes how they all broke below the neckline of a head-and-shoulder patterns last week. Whilst he expected the necklines to be retested, he admits that the scale of yesterday’s move (4 June) surprised him, takings prices to well above the resistance areas. Significantly, the 200-day moving average (blue line) seems to be holding up these indices.
However, Dodd is not yet ready to alter his bearish short- to medium-term outlook. He thinks that until the downtrends are broken, and in some cases prices move above their 50-day moving average, upside is limited.
The FTSE 250, however, is on a different path and still remains below its head-and-shoulders neckline and its 200-day moving average. Dodd is therefore more fully committed to his bearish outlook for UK equities and sees a target of 18,200 for FTSE 250.
Read the full report.
Yellow line = neckline of head-and-shoulders pattern
Blue line = 200-day moving average
Green line = 50-day moving average